Equity Research 2012 Mid Term Budget Overview Zimbabwe 26 July 2012 Imara Edwards Securities 2012 Mid-term

Budget Review 2012 Mid-term Budget Review THE 2012 BUDGET OVERVIEW According to the Ministry of Finance, the key objectives in the first two years of the Inclusive Government were macro-economic stability, creating fiscal discipline, restoring financial intermediation and creating a legacy of predictable and consistent policy frameworks. These objectives were achieved through the medium of the Short Term Emergency Recovery Programme (STERP) I and II. The 2012 National Budget theme was Sustaining Efficient and Inclusive Growth with Jobs and was intended to focus on democratising the economy through strengthening and sustaining macro-economic stability. Other objectives included leveraging the countrys potential in order to attain efficient, inclusive and pro-poor growth, capable of generating jobs and uplifting the standards of living of the people. The following macroeconomic targets and projections were thus made under a US$ 4.0bn budget together with a number of measures and facilities targeted at leveraging the capacity of the productive sectors. The 2012 National Budget Targets Indicator Target GDP Growth 9.4% Inflation 5.0% Revenues US$ 4.0bn O/W Diamond US$ 0.6bn Expenditures US$ 4.0bn O/W Current US$ 3.2bn Capital US$ 0.8bn Broad Money US$ 4.2bn Domestic Up to 80% Credit (% of Deposits) Exports US$ 5.1bn Imports US$ 8.3bn Account Balance Current US$ 3.1bn Source: Ministry of Finance The assumptions underpinning the above 2012 Macro-Economic and Budget Framework were: i. A normal rain season; ii. Guaranteed supply of minimum power and water for irrigation, necessary to support agriculture, mining and manufacturing; iii. Continued firming of international commodity prices for major exports such as tobacco, gold and platinum; iv. Uninterrupted sales of diamonds and the transparent accounting of diamond revenues; v. Decent levels of foreign direct investment, on the back of clarity around the policy of Indigenisation and Economic Empowerment; vi. Less 22discord and greater political harmony and stability in the Inclusive Government; vii. Greater economic and political integration; viii. Maintaining Public Service manning levels consistent with the resource envelope; ix. Financial sector stability. Analysts:
Kudakwashe Mundowozi +263 4 772 876 810 kudakwashe.mundowozi @imara.co Nontando Zunga +263 4 772 772 755 nontando.zunga@imara.co

Imara Edwards Securities

2012 Mid Term Fiscal Budget

GDP Growth Slowdown The following downside risks however led to the downward revision of the targets of the 2012 Budget: i. A poor rainy season; ii. Policy inconsistencies and uncertainties undermining investor confidence; iii. Lack of capital and the absence of alternative financing instruments; iv. Revenue underperformance against a high and unsustainable wage bill, crowding out social and infrastructure spending; v. Limited implementation and monitoring capacity; vi. Slow pace of reforms; vii. Corruption; viii. Volatile and fragile global financial environment. Consequently, from the 2012 GDP growth projections of 9.4%, the economy is now expected to shed almost 4 percentage points from the forecast to grow by only 5.6%, which also falls short of the MTP annual average target of 7.1%. The slowdown in GDP growth is on the back of underperformance by some key sectors such as agriculture and tourism, as shown below: The 2012 Revised Sector Growth Rates
Sector Agriculture Mining Manufacturing Electricity & Water Construction Finance & Insurance Real Estate Distribution,Hotels&restaurants Transport & Communication GDP at Market Prices
Source: Ministry of Finance

2009 21.0% 33.3% 10.0% 1.9% 2.1% 4.5% 2.0% 6.5% 2.2% 5.4%

2010 33.9% 47.0% 2.7% 1.5% 1.5% 0.5% 0.9% 0.5% 0.1% 8.1%

2011 7.4% 25.8% 3.5% 12.4% 1.0% 24.0% 100.0% 10.3% 5.5% 9.3%

2012 Org Prj 11.6% 15.9% 6.0% 4.9% 1.5% 23.0% 1.5% 13.7% 6.0% 9.4%

2012 Rev Prj -5.8% 16.7% 6.0% 4.5% 1.5% 23.0% 1.5% 10.4% 6.0% 5.6%

The macro-economic and budget framework for 2012 has thus also been revised as below: The 2012 Revised Macro-economic Framework
2009 6.1 5.4% -7.7% 1.0 0.9 1.6 3.2 1.4 0.7 2010 7.4 9.6% -3.1% 2.3 2.1 3.3 5.2 2.3 1.7 2011 Est. 9.4 9.4% 3.5% 2.9 2.9 4.5 7.6 3.1 2.8 2012 Initial Proj 11.9 9.4% 5.0% 4.0 4.0 5.2 6.8 4.3 3.9 2012 Revised Prj 11.4 5.6% 5.0% 3.6 3.6 5.1 8.2 3.9 3.5

Nominal GDP (US$ bn) Real GDP Growth(%) Inflation Average (%) Central Government Revenues (US$ bn) Expenditures(US$ bn) External Sector Exports (US$bn) Imports (US$ bn) Monetary Deposits (US$ bn) Domestic Credit (US$ bn)
Source: Ministry of Finance

Imara Edwards Securities

2012 Mid Term Fiscal Budget

AGRICULTURE The Minister stated that the underperformance of agriculture was the main source of GDP slippages in 2012.Referring to latest information from the Second Round Crop Assessment and Livestock Report, it was indicated that agriculture shed 13.2% and is, therefore, now projected to decline to -5.8%. Crops with reduced output were maize, tobacco, wheat, sorghum, soya beans and ground nuts. The downward revision was attributed to the poor agricultural season characterised by late onset of and erratic rainfall, and long dry spells from the end of December 2011 to mid February 2012. Summarised below is the performance of various crops for the period 2011 2012: Revised Agriculture Projections For 2012 (000 Tonnes)
Tobbaco Maize Wheat Beef Cotton Sugarcane Horticulture Poultry Groundnuts Dairy(m lt) Coffee Soya Beans Tea Paprika Pork Wildlife Sorghum Barley Sheep & Goats Sunflower Ostriches Overall growth 2011 Initial Projection 2012 Revised Projection 2012 2012 Growth 133 150 130 -0.60% 1452 1350 968 -4.70% 53 53 17 -2.50% 94 92 94 0.00% 250 286 255 0.30% 3264.6 4476.9 4476.9 2.50% 45 51 51 0.90% 65 70.5 70.5 0.40% 231 240 120 -1.50% 63 68.1 64.5 0.10% 2.7 2 1.9 -0.60% 84 100 70.5 -0.30% 25 15 24.5 0.00% 4 4 4 0.20% 13 16 13.8 0.00% 47 48 48 0.00% 95 140 64.8 -0.20% 44 44 44 0.00% 4 2 6.3 0.02% 12 15 15 0.10% 17 17 17 0.00% 11.2 7.4 -5.80%

Source: Ministry of Finance

The countrys maize productivity was said to be at an average of 0.6 tonnes per ha against a world average of above 4.2 tonnes per ha and high regional performers such as South Africa of 4.0 tonnes per ha. Local productivity of wheat was also reported to be declining further, with a substantial number of wheat farmers switching to other crops, as reflected by about 8,000 ha planted in 2012 from 15,982 ha in 2011. Livestock The recent drought affected the production of stock feeds and is also expected to adversely affect the production of livestock in the country. Consequently, production of milk, which was initially projected at 68.1 million litres, has been revised downwards to 64.5 million litres, mainly due to the high cost of stock feeds and depleted dairy head. MINING The Minister also highlighted the significant growth of the mining sectors contribution to GDP, from 4% between 1999 and 2008 to current levels of close to 11%. Key minerals, which underpin the sector and their respective projected outputs in 2012 are Gold (15 tonnes), Platinum (12 tonnes), Nickel (8 800 tonnes), Coal (2 million tonnes), Chrome (750 000 tonnes), Palladium (9 600 tonnes), and Black Granite (170 800 tonnes).

Imara Edwards Securities

Initial 2012 Budget First Half Projection Projection 7,100.7 5,650.9 4,367.5 4,243.1 322,774.0 972,546.0 5,913,762.9 15,000.0 11,000.0 8,800.0 8,300.0 620,000.0 3,500,000.0 9,000,000.0

2012 Mid Term Fiscal Budget

Mineral Gold (kg) Platinum (kg) Palladium (kg) Nickel (tons) Chrome (tons) Coal (tons) (crts) Dimond

2011 Actual 12,993.0 10,827.0 8,442.0 7,992.0 599,079.0 2,562,054.0 8,718,570.0

Revised Projection 2012 2012 Growth % 15,000.0 12,000.0 9,600.0 8,800.0 750,000.0 2,000,000.0 12,000,000.0 15.8 10.8 13.7 10.1 25.2 -21.9 37.6

Source: Ministry of Finance

Main Minerals Output: 2011-2012 Mineral 2010 2011 Jan Feb Mar April May Jun-12 2012 total Proj Gold/kg 9,620.0 12,993.0 1,150.8 1,081.8 1,262.3 1,224.2 1,190.8 1,190.8 15,000.0 Nickel/t 6,133.0 7,992.0 720.4 655.6 676.2 772.3 711.4 707.2 8,800.0 Coal/t 2,668,183.0 2,562,054.0 192,243.0 169,901.0 164,398.0 146,024.0 143,889.0 156,091.0 2,000,000.0 Asbestors/t 2,030.0 Chrome/t 516,776.0 599,079.0 37,092.0 43,632.0 37,092.0 117,816.0 45,233.0 41,909.0 750,000.0 Platinum/kg 8,639.0 10,827.0 952.0 866.2 907.5 1,019.5 963.9 941.8 12,000.0 Pladium/kg 6,916.0 8,442.0 742.5 670.6 698.8 794.9 732.8 727.9 9,600.0 Dimonds/carat 8,435,584.0 8,718,570.0 1,176,413.5 1,017,449.8 933,313.6 915,995.7 884,963.1 985,627.1 12,000,000.0 Ministry of Finance Source: Despite the improvement in mineral production revenues are still short of target. Consequently, the Minister reported that the amendment of the Mines and Minerals Act is set to be completed by end of the year. National Project Status and other appropriate approaches will also be considered for closed and distressed mining companies in order to facilitate the resumption of operations. Beneficiation and value addition for minerals will be time-framed and implemented under a Comprehensive Strategy and Programme as follows: Diamonds polishing and cutting; Gold refining; Platinum refining; Ferro-Chrome production; Black Granite cutting and polishing, and Steel making. The diamond policy is also set to be enacted whilst government will implement 100% ownership of diamonds. The export of unpolished and uncut diamonds as well as private diamond marketing arrangements will become prohibited, whilst the Revenue Act will be amended to ensure Zimra is connected to the entire value chain across all minerals. On gold, government is looking for the resources or potential investors for US$ 50.0m required to start local refining that is based on the current production of 1,100kg per month. The country is also working with other countries in pursuing the Extractive Industry Transparency Initiative in order to fully benefit from its mineral resources through strengthening of accountability, good governance and transparency in mining taxation. This will involve reviewing and accordingly renegotiating some of the agreements with mining companies to address the gap between income accruing to mining houses and that benefiting the state. MANUFACTURING Manufacturing sector growth is estimated to remain positive at 6% in 2012 with the strong growth in the subsectors of tobacco & beverages, food stuffs, wood & furniture, non-metallic mineral products, metal & metal products, drinks, to offset slippages in the sub sectors of paper & printing, clothing and footwear, textile and ginning. expected Utilisation Capacity The overall capacity utilisation for 2012 is projected at over 60% as indicated by the volume of manufacturing indices given below:

Imara Edwards Securities Volume of Manufacturing Indices

Food stuffs Drinks, Tobacco and Beverages Textiles and Ginning Clothing and Footwear Wood and Furniture Paper,Printing and Publishing Chemical and Petroleum Products Non-metalic Mineral Products Metals and Metal Products Transport Equipment Other Manufactured Goods
Source: Ministry of Finance

2012 Mid Term Fiscal Budget

2009 38.9 53.7 12.4 18.2 85.2 17.3 23.2 71.4 31.9 41.3 31.4 2010 43.2 69.1 19.9 15.6 85.3 16.3 25.7 76.7 41.2 35.2 44.8 2011 2012 Prj 48.6 53.8 72.3 73.2 26.7 26.5 9.7 9.9 89.5 96.2 18.6 18.6 32.6 34.8 69.4 86.8 64.2 72.3 32.5 37.7 57.7 69.2

Value Added Tax on Domestic Products (VAT) The Minister attributed the increase in the VAT on domestic production to improvement in domestic capacity utilisation. Since 2009, VAT collected on domestic products was said to have been on a gradual increase from 50.1% in 2009 to 69.8% in the first half of 2012. We however feel this could also be a function of inflation creep due to rising prices.
Composition of VAT
80% 70% 60% 50% 40% 30% 20% 10% 0% 2009 2010 2011 2012

Domestic

Imports

Source: Ministry of Finance

Industry Electricity Consumption Industrial production is also being undermined by the erratic supply of electricity. Electricity supply, during the period under review was on a decline and skewed towards domestic consumption, resulting in shorter working hours.

Electricity Distribution
300 250 200 150 100 50 0 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12

Industrial
Source: Ministry of Finance

Domestic

Imara Edwards Securities Capitalisation

2012 Mid Term Fiscal Budget

2009, only about 17% of the companies in the manufacturing sector were said to have managed to secure Since investments on new plant and machinery, leaving 83% with no major or new investments save for refurbishment and maintenance. Government, on its part, has also made efforts in assisting the sector through various industrial facilities such as DiMAF and ZETREF. As at 30 June 2012, applications received under DiMAF amounted to US$ 40.1m. Projects US$ 10.1m were approved and US$ 3.8m has been disbursed to the qualifying companies located in various worth provinces of the country. BANK AMOUNT US$ APPROVALS US$ DISBURSEMENTS Trust Bank 3,000,000.0 1,000,000.0 1,000,000.0 Kingdom Bank 4,000,000.0 Agribank 5,000,000.0 4,970,000.0 3,889,996.0 BancABC 5,000,000.0 4,000,000.0 NMB 5,000,000.0 4,965,000.0 4,633,400.0 POSB 5,000,000.0 250,000.0 TN Bank 5,000,000.0 2,140,000.0 20,000.0 ZB Bank 5,000,000.0 4,230,000.0 2,250,000.0 Metropolitan Bank 8,000,000.0 6,150,000.0 5,000,000.0 IDBZ 10,000,000.0 9,504,219.0 6,000,000.0 FBC Bank 15,000,000.0 10,363,538.0 9,047,281.0 Total 70,000,000.0 47,572,757.0 26,840,677.0 Source: Ministry of Finance Domestic Savings Mobilisation dollarisation interest rates on deposits have remained low, with savings rates averaging 0%5%, against lending Since rates of between 18%30%. This has undermined efforts at mobilising domestic savings, thereby limiting the volume of medium to long term resources available for lending to industry. The Ministry has been pursuing efforts via moral which were reported to have begun to yield positive results as some banks are now offering instruments at suasion competitive interest rates and if supported should start attracting larger deposits. Industry Clusters Government, through the Ministry of Industry and International Trade, in cooperation with business through CZI, ZNCC and the NECF, is looking to resuscitate industrial clusters as part of implementing the Industry Development and National Trade Policies. TOURISM Tourism receipts for 2011 amounted to US$ 662.0m, up from US$ 634.0m in 2010. In 2012, receipts are expected to increase by 11.2%, reaching US$ 736.0m, with the bulk coming from European and American markets. The countrys recent ascendancy to the Presidency of the Africa Travel Association and its pending co-hosting of the 20th Session of the UNWTO General Assembly in 2013, leading to its Presidency-in-Session of that United Nations Specialised Agency for the following two years is expected to give the country a grand vantage point from which to address key regional and global tourism issues. Capital Expenditure disbursements to the end of June 2012 amounted to US$ 204.0m against a target of US$ 386.9m as indicated Capital below. 6

Imara Edwards Securities

Actual Disbursements to June US$ 6,170,000 22,500,000 24,245,000 19,459,972 12,316,418 14,153,815 21,497,604

2012 Mid Term Fiscal Budget

Sector Energy Transport and Communication Water and Sanitation Housing ICT Education Health Agriculture Irrigation and Rehabilitation of Research Institutions Strategic Grain Reserve Crop input Support Constituency Development fund Other

Disbursement Budget US$ Targets to June US$ 47,500,000 113,400,000 113,245,000 118,610,000 40,200,000 85,200,000 63,425,000 23,750,000 53,700,000 49,622,000 54,305,000 22,100,000 47,600,000 40,712,500

Variance (under- Disbursment as % of perfomance US$) Budget 17,580,000 31,200,000 25,377,000 34,845,028 9,783,582 33,446,185 19,214,896 8,975,000 (16,300,000) 876,800 4,000,000 13,917,982 182,916,473 0.1 0.2 0.2 0.2 0.3 0.2 0.3

25,850,000 50,200,000 37,000,000 8,000,000 97,370,000 800,000,000

11,925,000 16,100,000 20,500,000 4,000,000 42,685,000 386,999,500

2,950,000 32,400,000 19,623,200 28,767,018 204,083,027

0.1 0.7 0.5 0.3 0.3

Source: Ministry of Finance

The shortfall in budgeted expenditures was mainly a result of limited revenue inflows, particularly for those projects that had been earmarked for financing through diamond revenues. Employment Costs The employment cost bill for the period January to June 2012 amounted to US$ 1.167bn against planned expenditure of US$ 1.073bn, as depicted below.
Employment Costs Recurrent Operations Capital Expenditure Total Original Estimates US$ m Jan US$ m Feb US$ m Mar US$ m April US$ m May US$ m Jun US$ m Total Budget Support 2,281.0 155.2 219.7 200.1 194.2 196.1 201.4 1,166.7 919.0 20.3 41.1 51.9 47.4 29.6 54.3 244.7 800.0 5.0 26.1 32.0 57.2 21.2 39.0 180.6 4,000.0 180.6 286.9 283.9 298.8 246.9 294.8 1,591.9

Source: Ministry of Finance

Composition of the Employment Cost Bill: January to June 2012

Diplomatic Mission 1% Medical Aid NSSA 1% 4%

Grant Aided Institutions 15%

Pension 17%

Civil Service 62%

Source: Ministry of Finance

Redrafting of the Income Tax Act The Income Tax Bill has already been approved by the Cabinet Committee on Legislation and is waiting gazetting before presentation.

Imara Edwards Securities

2012 Mid Term Fiscal Budget

EXTERNAL PUBLIC DEBT Government is already making strides in implementing the Zimbabwe Accelerated Arrears Clearance, Debt and Development Strategy (ZAADDS), through accelerated re-engagement with creditors including multilateral financial institutions the IMF, World Bank and the AfDB. The strategy aims at achieving debt relief, that way creating opportunities for new financing and normalisation of relations with creditors. State of the economy and strategies being proposed Major revenue sources for the first six months of the year were Value Added Tax 31%, Pay As You Earn 19%, Excise Duty 11%, Corporate Income Tax 11% and Customs Duty 10%. The cumulative revenue shortfall thus amounted to US$ 244.2m, largely constituting diamond dividends of US$ 229.3m. Diamonds contributed US$ 41.6m of the projected US$ 600.0m. Monthly revenue collection fell below target as follows:
US$m January February March April June (spikedue to quaterly payments) Actual 229.7 14.5 215.3 5.0 265.9 4.7 234.6 6.5 307.3 Target 233.0 36.0 218.1 41.5 264.3 45.0 237.0 45.5 245.3 Variance 1.4% 148.3% 1.3% 730.0% -0.6% 857.4% 1.0% 600.0% -20.2%

Collections Diamond Sector Collections Diamond Sector Collections Diamond Sector Collections Diamond Sector Collections Diamond Sector

Source: Ministry of Finance

Expenditure Cumulative expenditure totalled US$ 1.6bn against a target of US$ 1.8bn whilst overall expenditure underperformed by US$ 273.0m. US$ 1.2bn was spent on wages, which is 73% of total expenditure. The Ministry had targeted 57%, thus indicating the crowding out effect of employment costs. There was a huge increase in employment levels including 5,200 for the national army although Health and child welfare declined by 547 employees. The Minister announced that future recruitment would need Treasury approval. Foreign travel expenditure was also high and now totals US$ 156.0m since dollarisation, although investment into the country has been less impressive at less than US$ 370.0m compared to c. US$6.8bn for SSA.

Measures to create additional revenue The Minister noted that there are a number of ministries collecting revenue outside treasury, including the Registrar Generals office and the Police, while statutory bodies and other parastatals are also holding on to huge sums of money which will need to be forwarded to Treasury. Customs duty collections at US$ 112.8m (or 5% of imports) remain low compared to the large amounts of goods passing through the border. SADC valuation methods for imports are going to be implemented, whilst Zimra systems are going to be strengthened in a bid to increase revenue. Public Finance Management Bill Government owes US$ 163.9m in domestic arrears and thus there is a need to avoid accumulation of arrears and unbudgeted expenditure. Inter parastatal debt amounted to US$ 1.1bn, due to conversion of Zim $ debt to US$. Supply Side Measures A grain deficit of 445,000mt of maize is expected of which 200,000mt will be taken from grain reserves whilst the balance will be imported by the private sector.

Imara Edwards Securities

2012 Mid Term Fiscal Budget

Finance Sector Amendments are being finalised to the Banking Act, whilst measures to reduce bank charges are set to be introduced. A framework is also being worked on to ensure deposits gain interest and also to reduce interest costs to below 10%. FDI The Minister announced that government has decided that new FDI will not have to comply with the 51% local ownership section of the Indigenisation Act. The Indigenisation and Investment Act would thus be amended accordingly. Constitution The draft constitution has been concluded and a 2nd stakeholders conference and referendum are set to follow. Other measures Customs duty on wheat flour will go up to 20% from 5% with effect from 1 August 2012 to reduce the high imports, although millers will still be allowed to import at 5%. VAT on soya, seed cotton and white sugar was also increased. The excise duty for diesel and petrol were also increased to US 20c and US 25c per litre respectively. Mining fees and charges are also set to be reviewed. Assessment and Recommendation The Mid Term Fiscal Policy laid a clear picture of the situation of the ground while the downward revision in growth rates also narrowed the gap between local forecasts and those of international organisations such as the IMF and World Bank. Although the economys steady recovery is expected to continue, unresolved and unclear areas such as the contentious empowerment policy will limit the economys full recovery. The ministers announcement that new foreign direct investment would no longer have the 51% indigenisation requirement is commendable and should assist in bringing in more FDI. We however caution investors that we are still waiting to establish whether the Minister of Indigenisation will issue the requisite update in agreement with the above. The election road map however seems to be taking shape, with the referendum on the new constitution likely to occur in Q4 2012, while elections are likely to be held in 2013. The local bourse has been significantly impacted by uncertainty in the country and the ongoing liquidity situation. Nevertheless this has created attractive valuations for some stocks as shown on the summary sheet below. We recommend investors undertake careful stock picking, based on strong fundamentals such as focused management, attractive dividend payout, clean balance sheet and strong cash flow generation. Our recommendations include Dairibord, Delta, Innscor, OK Zimbabwe, SeedCo and Zimplow amongst others.

Imara Edwards Securities

2012 Mid Term Fiscal Budget

ZSE Summary Sheet -25 July 2012

Companies Agricultural Ariston Border Timbers AICO Hippo Valley Estates Interfresh Padenga Holdings Seed Company Building and Allied Lafarge M&R PGI Turnall PPC Radar Willdale Beverages, Hotels and Leisure Afdis Delta Innscor RTG Afrisun Engineering CAFCA Gulliver Powerspeed Steelnet ZECO Zimplow Financial ABC Barbican Barclays Bank CBZ Interfin ZBF Holdings FBC Holdings NMB Bank Trust Holdings Insurance Fidelity AFRE Nicoz Diamond Old Mutual Zimre Analyst Year Shares end in issue NSZ NSZ NSZ NSZ NSZ NSZ NSZ NSZ NSZ NSZ NSZ NSZ NSZ NSZ ATC ATC ATC ATC ATC NSZ NSZ NSZ NSZ NSZ NSZ ATC ATC ATC ATC ATC ATC ATC ATC ATC NSZ NSZ NSZ NSZ NSZ Price Mkt cap (USc) (US$m) Eps (USc) +1 +2 P/E (x) PBV (x) hist +1 +2 hist +1 +2 8.5 9.5 1.2 11.0 8.8 na 4.2 11.7 0.0 15.6 9.5 na 10.4 26.8 66.4 na 9.8 6.7 8.9 7.4 na na -4.6 3.9 na 0.1 0.0 na 7.8 2.4 1.7 0.0 16.0 1.3 na 2.4 2.6 2.8 na -0.3 5.0 na 8.6 na 0.0 6.5 3.5 1.2 9.9 5.6 na 3.7 9.5 0.0 13.8 8.2 na 8.7 23.3 39.6 na 7.4 4.5 7.0 5.5 na na -4.0 2.9 na 0.1 0.0 na 6.9 1.6 1.5 0.0 8.7 1.0 na 1.2 2.1 1.9 na -0.6 3.5 16.8 5.9 na 0.0 0.6 0.6 0.0 1.3 0.9 0.1 1.0 3.1 2.8 1.6 0.7 1.7 24.3 0.3 0.3 3.2 3.2 2.5 1.7 0.4 0.8 0.0 0.0 0.0 0.0 1.7 0.4 0.0 2.4 0.4 3.7 0.5 0.6 0.8 0.0 0.7 0.2 1.4 0.5 0.0 0.6 0.0 1.2 0.8 0.1 0.9 2.6 0.5 0.0 1.1 0.7 0.1 0.7 2.2 EV/EBITDA (x) +1 +2 7.2 20.1 4.9 8.8 (3.1) 2.8 7.8 2.4 5.3 4.1 5.7 (2.6) 2.4 6.3 OPM* (%) +1 Recommendation +2 ST LT Sell Hold Buy Buy Sell Buy Buy Buy Buy Sell Buy Buy Hold Sell Buy Buy Buy Sell Hold Buy Sell Spec Buy Susp Sell Buy Hold Susp Accumulate Spec Buy Avoid Hold Hold Buy Sell Hold Sell Hold Buy Accumulate

hist

hist

hist (13.0) (14.5) 15.8 12.0 (19.0) 26.2 22.3

na 3,368.3 Sept 1,378.4 1.1 June 42.9 10.0 Mar 531.7 12.0 Mar 193.0 100.0 Dec 487.6 0.2 June 541.6 5.5 Mar 193.0 85.0 na 3,114.3 Dec 80.0 55.0 Jun 214.3 6.0 Mar 478.3 2.0 Dec 493.0 7.0 Sept 15.2 260.0 Jun 55.4 7.0 Sept 1,778.0 0.1

470.9 15.2 (0.5) 4.3 11.7 63.8 1.7 193.0 4.6 0.7 (0.3) 29.8 0.7 164.1 9.0 146.2 44.0 12.9 9.6 34.5 39.6 3.9 1.8 3.4 0.5 (1.4) 0.7 7.1 (0.5) (0.1) (1.0) 6.2 4.8 (0.1) (0.6)

20.5 0.1 0.4 na 8.9 9.0 0.9 1.8 2.0 11.6 9.7 15.2 18.7 (0.5) (0.8) na 1.3 1.5 8.2 9.5 11.8 12.4 4.5 1.4 (0.6) 0.9 7.8 0.5 (0.0) 5.1 1.6 (0.0) 1.0 9.0 0.8 (0.0) 0.1 20.9 24.7 na 13.0 29.6 na na

(5.3) (3.7) 5.4 16.6 (3.8) 5.2 9.7 13.9 10.3 (2.1) 7.4 13.5 6.2 (3.7)

4.9 10.6 Sell 2.4 7.4 Hold 12.2 13.5 Buy 14.0 18.0 Buy (24.9) (22.4) Sell 47.1 48.6 Buy 21.5 22.3 Buy 13.0 5.7 (17.5) 13.8 37.6 8.0 (41.2) 9.5 18.4 7.5 (1.5) (3.7) 12.0 Buy 6.2 Buy (1.1) Sell 13.9 Buy 39.8 Hold 3.6 Hold (7.0) Sell 12.7 Buy 19.2 Buy 10.3 Buy (0.7) Sell (3.7) Sell

2.3 2.0 1.4 1.2 0.7 0.9 1.6 1.4 24.3 25.1 0.3 0.3 0.4 0.4 2.2 2.4 2.8 1.8 0.3 0.7 0.0 0.0 0.0 0.0 1.5 1.5 2.0 2.2 2.0 0.3 0.5 0.0 0.0 0.0 0.0 1.3

9.5 8.9 9.7 5.1 4.5 4.2 (2.6) (27.6) (29.1) 6.2 5.3 14.3 13.5 13.5 34.0 8.0 14.9 12.4 (6.8) 17.8 (101.5)

na 4,305.9 1,167.3 Jun 95.2 10.0 9.5 Mar 1,192.1 70.0 834.5 Jun 541.6 53.0 287.0 Dec 1,645.5 1.8 29.6 Sept 831.5 0.8 6.7 na 2,270.6 Dec 8.2 50.0 Sept 554.9 0.0 Sept 379.2 1.4 Dec 538.0 0.0 Jan 463.3 0.2 Dec 327.1 7.0 na 6,975 Dec 64.4 54.0 Dec 119.0 0.0 Dec 2,152.6 3.7 Dec 684.1 7.0 Dec 20.6 1.7 Dec 175.2 11.5 Dec 591.9 6.0 Dec 2,807.1 0.7 Dec 359.7 0.8 Dec Dec Dec Dec Dec 1,394.5 108.9 16.0 217.1 6.0 559.5 3.0 67.6 144.0 767.4 1.1

14.2 1.9 2.9 na 7.9 10.0 11.3 7.1 9.6 11.0 (0.1) (0.1) na (0.3) (0.3) na

(37.9) 5.8 3.2 (3.8) 7.2 5.7 4.5 17.7 9.8 6.5 4.0 5.6 (37.0) (144.3) (290.4) (7.1) (2.6) 29.3 43.0 (16.8) 2.9 (0.9) 3.0 0.0 (0.2) 5.9 2.3 (1.0) 3.0 0.0 (0.2) 5.4 1.5 (0.8) 2.9 0.0 (0.1) 4.7

33.5 -5.2 4.1 15.7 17.9 24.0 4.4 0.2 (0.5) (0.8) (1.1) na 5.3 0.1 0.1 0.1 0.2 0.0 0.0 0.9 (0.4) (0.5) (0.5) na 22.9 0.8 1.0 1.1 9.0 240.8 3.5 34.8 18.9 30.9 36.9 2.9 0.0 0.0 79.6 0.1 0.2 0.4 56.7 47.9 4.4 5.4 7.1 1.6 0.4 0.0 (0.2) (0.2) na 20.1 3.3 4.7 9.2 3.5 35.5 1.6 2.3 2.9 3.7 19.6 0.2 0.3 0.4 4.3 2.9 (0.3) (1.3) (1.2) na 122.6 17.4 13.0 16.8 97.3 8.4 1.8 (2.3) 0.3 (9.4) 0.3 3.2 (0.3) 0.3 (8.0) 0.4 -0.2 4.6 8.8 0.4 na 0.5 10.3 (4.0) na 0.5 0.0

10.8 10.9 12.7 Hold (90.4) (88.3) (85.7) Sell 3.0 3.0 3.0 Spec Buy 0.0 0.0 0.0 Susp (130.1) (138.4) (110.6) Avoid 22.3 19.9 20.3 Buy 84.7 na 93.5 56.5 91.3 65.9 67.0 82.8 na 81.8 49.8 78.0 60.8 66.3 81.5 Accumulate na Susp 73.3 Hold 44.9 Spec Buy Sell 67.3 Spec 60.3 Spec 65.8 Spec Buy Sell Hold Sell Hold Buy Spec

0.4 0.3 0.0 0.0 2.1 1.7 0.3 0.3 6.3 33.4 0.4 0.3 0.5 0.5 0.6 0.5 0.0 0.0 0.7 0.2 1.2 0.6 0.0 0.9 0.2 1.0 0.6 0.0

OPM* - for finanial companies its cost to income ratio

10

Imara Edwards Securities

Companies Food Cairns Colcom Dairibord National Foods Starafrica Industrial Holding Apex Astra CFI General Beltings Meikles Phoenix TA TN Holdings TSL Mining Bindura Nickel Falgold Hwange RioZim Paper and Packaging Amalgamated Regional Trading Hunyani Holdings Zimbabwe Newspapers Pharmaceuticals and Chemicals Chemco Medtech Retail stores Celsys Edgars Stores OK Zimbabwe Pelhams Redstar Truworths Tobacco BAT Zimbabwe Technology Econet Transport Pioneer NTS TPH Property Dawn Properties Mashonaland Holdings Pearl Properties Zimre Properties Investments Analyst Year Shares end in issue NSZ NSZ NSZ NSZ NSZ ATC ATC ATC ATC ATC ATC ATC ATC ATC ATC ATC ATC ATC na 1,269.6 Aug 167.7 Jun 159.0 Dec 356.0 Jun 68.4 Mar 518.5 na 2,868.8 Oct 503.7 Aug 139.6 Sep 105.5 Dec 530.2 Mar 240.8 Oct 87.5 Dec 164.8 Dec 750.8 Oct 345.9 na Dec Sept Dec Dec 443.4 126.0 111.2 166.2 40.0 Price Mkt cap (USc) (US$m) 0.3 28.0 16.5 90.0 0.6 0.1 3.3 5.5 0.2 14.0 1.0 12.0 3.9 6.0 3.5 10.0 26.0 53.0 0.3 7.5 1.0 0.5 0.1 0.1 7.3 10.0 0.6 0.0 5.0 168.4 0.5 44.5 58.7 61.6 3.1 116.0 0.3 4.5 5.8 1.0 33.7 0.9 19.8 29.3 20.8 Eps (USc) +1 +2 P/E (x) hist +1 +2 PBV (x) +1 +2 0.1 1.8 1.3 1.1 0.6

2012 Mid Term Fiscal Budget

EV/EBITDA (x) +1 +2 (3.9) 7.4 4.2 6.5 (2.7) 0.7 1.1 (9.4) (2.7) 6.7 3.8 8.8 0.0 14.7 (0.2) 0.0 0.0 0.0 4.2 14.5 (3.4) (0.2) 80.7 (4.0) 5.4 6.5 11.5 0.0 11.2 3.6 2.6 (19.6) 12.3 0.0 15.4 0.9 6.5 0.2 (2.0) 6.1 3.1 5.1 (2.6) OPM (%) +1 (29.6) 10.8 11.7 4.2 (23.0) 1.4 6.3 (2.3) (16.0) 1.8 1.4 0.6 0.0 6.9 Recommendation ST LT Sell Buy Buy Buy Sell Sell Spec Hold Sell Spec Hold Sell Sell Spec Hold Hold Buy Hold Sell Buy Spec Sell Sell Sell Buy Buy Sell Susp Buy Buy Buy Sell Buy Buy Hold Buy Buy Buy

hist (4.9) 3.1 2.0 7.3 (2.9) (0.2) 0.3 (0.7) (0.4) 2.4 0.1 (3.8) (0.1) 0.3

hist

hist

hist (19.9) 12.2 11.3 3.5 (16.0)

+2

-28.4 47.3 13.3 (3.6) (3.8) na na na 0.7 0.2 3.0 3.7 10.6 10.9 8.9 2.3 2.1 2.7 3.6 9.4 7.0 5.1 1.6 1.4 7.3 11.1 16.1 16.1 10.6 1.9 1.4 (2.4) (1.8) na na na 0.5 1.1 0.0 0.9 (2.7) (0.3) (0.5) 0.1 (2.9) 0.1 0.5 28.2 17.8 7.1 0.0 na 6.7 5.5 0.0 0.0 1.2 5.1 1.7 1.3 0.1 0.1 (0.4) na na na 0.1 0.1 (0.2) na na na 0.0 0.0 0.6 6.6 na 29.2 0.3 0.3 0.1 33.6 33.3 25.9 0.4 0.4 (2.1) na na na 0.4 0.4 0.2 na 30.1 26.3 7.1 5.7 0.6 28.7 17.7 15.6 1.5 1.4 -4.2 -4.6 na na (1.8) (0.9) 13.1 50.9 0.0 0.0 na na 0.0 0.0 na na 0.0 0.0 12.2 na 10.7 4.9 7.3 1.8 0.1 0.1 7.9 1.0 0.8 3.8 0.4 0.4

(3.9) 7.6 5.2 8.9 (5.0)

(30.1) Sell 11.9 Buy 13.3 Buy 4.8 Buy (19.3) Sell 1.2 Sell 6.7 Spec (0.4) Hold (9.0) Sell 2.1 Spec 1.4 Reduce 0.6 Spec Buy 0.0 Sell 7.1 Spec

0.0 (1.1) 0.1 1.5 0.1 (8.5) 0.0 0.0 0.3 (134.2) 0.4 5.2 0.4 15.8 4.7 0.0 1.4 19.9 (0.2) 0.0 0.0 0.0 0.1 0.7 0.3 (0.3) 0.0 0.0 0.0 5.4 (54.9) 6.0

0.6 (14.6) 1.0 5.2 (40.8) (2.9) (2.9) (33.0) 5.1 (1.8) 3.1 1.0 5.5 0.6 0.0 0.0 13.1 6.1

79.9 -4.8 4.4 (13.1) (15.1) (16.3) na 11.1 1.6 6.6 8.1 11.1 43.2 2.3 2.0 0.5 na 21.2 (26.2) (20.5) (17.6) na 31.1 1.4 24.0 5.8 2.9 0.1 2.8 148.0 1.3 20.5 102.1 5.5 0.0 18.7 37.4 37.4 694.8 694.8 23.5 1.4 5.1 17.0 105.8 16.0 37.2 34.7 18.0 3,539.61 3,492.90 (0.6) 0.0 0.1 (5.7) (0.1) (0.1) 0.8 0.4 0.0 0.5 28.1 (0.0) 0.6 0.1 (7.3) (0.0) (0.1) 1.3 0.8 0.0 1.0 41.8 -13.8 0.2 na 0.8 172.3 0.2 7.7 1.3 (0.0) (0.1) 1.9 1.3 0.3 1.3 43.4 -2.1 na na

(0.2) (372.6) (626.0) (610.4) Sell 0.0 3.8 3.1 0.8 Hold 0.0 (47.2) (58.6) (101.1) Buy 0.0 0.0 0.0 0.0 Hold 2.3 8.2 (1.9) (1.0) 61.0 0.5 (4.6) (0.8) (5.1) (1.5) 2.0 0.1 1.0 (13.6) (1.0) (26.3) 15.1 3.4 9.4 0.0 12.2 16.0 40.2 (1.6) 6.6 4.7 15.9 63.9 53.0 48.8 3.7 Sell 1.6 Hold 1.3 Spec 3.3 Sell (0.9) Sell (17.9) Sell 15.7 Add 4.8 Buy 35.0 Sell 0.0 Susp 13.4 Hold 13.3 Buy 40.1 Buy (1.6) Sell 10.7 Hold 5.4 Hold 19.9 66.9 50.2 57.0 Hold Buy Buy Buy

na 1,363.0 ATC Sep 467.3 ATC Oct 319.7 ATC Dec 576.0 na 2,814.9 ATC Oct 15 ATC Dec 2,800 NS NS NS NS NS NS na June Jan Mar Mar Mar Jun 5,417.8 1,599.6 282.7 1,020.9 995.6 1,145.3 373.6

-2.3 54.2 na 3.9 0.2 0.2 0.2 0.6 na na 16.3 51.7 (49.5) 123.9 (0.1) 1.9 1.7 1.2 0.0 3.7 3.3 1.0 0.7 1.5 0.8 0.2 0.4 0.3 0.3 (2.3) 9.7 11.7 13.9 0.0 14.9 4.9 2.8 (21.5) (54.3) 0.0 713.1 0.6 6.2 (0.2)

26.3 10.0 5.2 na na na (0.4) (0.2) 11.7 6.9 4.7 6.1 3.2 25.7 12.3 7.6 2.6 2.2 69.5 30.0 2.5 3.0 2.6 0.0 0.0 0.0 0.0 0.0 19.7 9.8 7.1 9.7 5.7 7.7 6.4 4.2 4.1 4.3 4.1 4.3 4.1 3.7 3.5 3.5 3.1 3.5 3.0 1.8 1.3 8.3 8.7 11.8 7.6 3 23.0 7.5 1.8 2.8 5.7 6.9 0.9 0.8 6.9 2.2 1.9 5.5 1.0 0.9 4 13.9 6.0 5.4 2.2 0.2 0.4 0.4 0.4 0.2 0.4 0.3 0.3

(5.1) (64.2) 4.0 11.9 3.6 2.1 2.5 8.5 0.0 0.0 7.7 10.1 3.5 2.1 (18.1) 6.3 0.0 10.1 1.3 7.2 0.4 16.0 40.0 (1.6) (2.7) 3.9 0.4 61.0 56.5 39.1

na ATC Dec na ATC June na ATC Dec ATC Dec ATC Aug NS NS NS NS na Mar Sep Dec Dec

17.4 17.4 215.0 171.6 171.6 405.0 463.5 55.0 253.8 154.7 7,271.1 2,457.2 1,859.1 1,238.2 1,716.7 2.5 2.0 11.0 0.7 2.0 2.8 1.1

97.8 115.8 132.9 (2.8) 0.1 0.8 0.5 1.3 1.3 0.3 0.8 0.3 1.2 0.0 0.3 1.5 0.4

-535.9 1.0 na 0.5 23.6 1.6 11.2 0.0 0.3 0.5 0.5 2 1.3 1.5 2.1 2.9

INDUSTRIALS Industrials (Zim Reg) OPM* - for finanial companies its cost to income ratio

7/25/2012

11

Imara Edwards Securities

2012 Mid Term Fiscal Budget

NOTES

Imara Capital Securities Botswana Ground Floor, Exchange House Block 6, Plot 64511 Fairgrounds, Gaborone, Botswana Tel: + 267 318 8886 Cell: + 267 7 132 1421 / 7 162 4390

Imara Africa Securities ( A division of Imara SP Reid) Imara House, Block 3 257 Oxford Road Illovo Johannesburg, 2146 South Africa Tel: +27 11 550 6200 Fax: +27 11 550 6295 Imara Securities Angola SCVM Limitada Rua Rainha Ginga 74, 13th Floor, Luanda, Angola Tel: +244 222 372 029/36 Fax: +244 222 332 340

Imara Edwards Securities (Pvt.) Ltd. Tendeseka Office Park 1st Floor Block 2 Samora Machel Ave. Harare, Zimbabwe Tel: +2634 790590 Fax: +2634 791435 4 Fanum House Cnr. Leopold Takawira/Josiah Tongogara Street Bulawayo Tel: +263 9 74554 Fax: +263 9 66024 Members of the Zimbabwe Stock Exchange

Imara S P Reid (Pty) Ltd Imara House 257 Oxford Road Illovo 2146 P.O. Box 969 Johannesburg 2000 South Africa Tel: +27 11 550 6200 Fax: +27 11 550 6295 Member of the JSE Securities Exchange

Namibia Equity Brokers (Pty) Ltd 1st Floor City Centre Building, West Wing Levinson Arcade Windhoek Namibia Tel: +264 61 246666 Fax: +264 61256789 Member of the Namibia Stock Exchange

Stockbrokers Malawi Ltd Ground Floor, NBM Business Centre, Cnr. Hannover Street/ Henderson Street Blantyre Malawi Tel: +265 1822803 Member of the Malawi Stock Exchange

Stockbrokers Zambia Ltd 2nd Floor (Wing), Stock Exchange Building Central Park Corner Church/Cairo Roads P O Box 38956 Lusaka Zambia Tel: +260 211232455 Fax: +260 211224055 Member of the Zambia Stock Exchange

This research report is not an offer to sell or the solicitation of an offer to buy or subscribe for any securities. The securities referred to in this report may not be eligible for sale in some jurisdictions. The information contained in this report has been compiled by Imara Edwards Securities (Pvt.) Ltd. (Imara) from sources that it believes to be reliable, but no representation or warranty is made or guarantee given by Imara or any other person as to its accuracy or completeness. All opinions and estimates expressed in this report are (unless otherwise indicated) entirely those of Imara as of the date of this report only and are subject to change without notice. Neither Imara nor any other member of the Imara Group of companies including their respective associated companies (together Group Companies), nor any other person, accepts any liability whatsoever for any loss howsoever arising from any use of this report or its contents or otherwise arising in connection therewith. Each recipient of this report shall be solely responsible for making its own independent investigation of the business, financial condition and prospects of companies referred to in this report. Group Companies and their respective affiliates, officers, directors and employees, including persons involved in the preparation or issuance of this report may, from time to time (i) have positions in, and buy or sell, the securities of companies referred to in this report (or in related investments); (ii) have a consulting, investment banking or broking relationship with a company referred to in this report; and (iii) to the extent permitted under applicable law, have acted upon or used the information contained or referred to in this report including effecting transactions for their own account in an investment (or related investment) in respect of any company referred to in this report, prior to or immediately following its publication. This report may not have been distributed to all recipients at the same time. This report is issued only for the information of and may only be distributed to professional investors (or, in the case of the United States, major US institutional investors as defined in Rule 15a-6 of the US Securities Exchange Act of 1934) and dealers in securities and must not be copied, published or reproduced or redistributed (in whole or in part) by any recipient for any purpose. Imara Edwards Securities 2012

12